Monday, 1 July 2013

China Pivots Toward Social, Environmental Concerns as Economy Cools

China’s
President Xi Jinping said officials shouldn’t be judged solely on their record
in boosting gross domestic product, the latest signal that policy makers are
prepared to tolerate slower economic expansion.

The
Communist Party should instead place more importance on achievements in
improving people’s livelihood, social development and environmental quality
when evaluating the performance of officials, the Xinhua News Agency reported
on Saturday, citing Xi at a meeting on personnel management on the eve of the
92nd anniversary of the party’s founding.

Xi’s
comments follow remarks he made last month that China won’t sacrifice the environment to ensure short-term growth, and
take place as the world’s second-largest economy undergoes its worst cash
crunch in at least a decade as the government seeks to wring speculative
lending out of the banking system.

“Xi is
further legitimizing the case for slower growth,” said Andy Mantel, chief
executive of Pacific Sun Advisors, an asset manager in Hong Kong that invests
in Chinese stocks.

“It is
important to let local government
officials know there is less importance of non-stop economic growth.

There will
be less pressure for local government officials to pump up their economic growth forecasts.” China needs
growth of about 7 percent to double per capita gross domestic product by 2020
from the level in 2010, Prime Minister Li Keqiang said on May 27 in Berlin
after meeting with German Chancellor Angela Merkel during his first trip abroad
as premier.

That’s down
from an average pace of 10.5 percent a year over the past decade, with growth
driven by surging credit, government investment, and exports.

The credit
crunch has increased chances that the government will miss its 7.5 percent
annual target for economic growth this year, according to Goldman Sachs Group
Inc. Xi’s comments “reinforce our view” there is a 30 percent chance growth may
slump below 7 percent in the third or fourth quarter, said Zhang Zhiwei, Nomura
Holdings’ chief China economist in Hong Kong.

China’s
banking regulator, in his first public comments since the country’s worst cash
crunch in at least a decade, said Saturday the operations of its lenders won’t
be disrupted because they’ve built up sufficient cash reserves.

Banks had
about 1.5 trillion yuan ($244 billion) of cash reserves as of Friday that could
be used for payment and settlement needs, more than double what is usually
required, Shang Fulin, chairman of the China Banking Regulatory Commission,
said in a speech in Shanghai.

“The tight
liquidity condition on the interbank market has been easing in the last few
days,” Shang said at the annual Lujiazui financial conference. “This type of
situation won’t affect the banking sector’s smooth operations.”

The cash
crunch on the interbank market exposes “deficiencies” in commercial banks’
liquidity management and their business structures, Shang said.

The next
phase of reform in the banking sector will focus on supporting the real economy
and risk prevention, he said. The one-day repurchase rate touched a record
13.91 percent on June 20 before tumbling on signs targeted injections of funds
were being used to ease the cash crunch.

The slowing
pace of economic growth in China remains within a “reasonable” range and the
economy is stable, People’s Bank of China governor Zhou Xiaochuan told the same
forum on Friday in his first comments since the cash crunch.

Zhou also
sought to soothe concerns of a further deceleration of growth, saying he’s fully
confident in China’s economic prospects and financial system. A recent review
by the National Audit Office indicated that total local government direct and
guaranteed debt may have risen 13 percent to 12.1 trillion yuan by the end of
2012 from the end of 2010, according to Moody’s Investors Service, citing its
own calculations based on data in the auditor’s report that showed a 13 percent
increase in the debts of a sample of 36 local authorities.

At the
meeting Xi said the Communist Party’s departments should place integrity before
capability when promoting officials and urged disciplinary violations and
corruption be punished during official selection procedures, according to
Xinhua. Cadres should be “true believers of Marxism,” exercise their power carefully
and resist corruption, Xi said according to Xinhua.

“Xi’s speech
includes a forward-looking recognition that obsessive emphasis on economic
growth targets is obsolete and must now be balanced against vital environmental
and social concerns,” said William Overholt, a senior research fellow at
Harvard University’s John F. Kennedy School of Government in Cambridge,
Massachusetts.

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